Eq: Large Cap
Dividend stocks do not seem like a bad bet right now, so long as they are names with reliable dividends. Interest rate risk seems very minor, and stocks with decent cash flow appear likely to do well as yields stay ultra-low. These value stocks are favored by analysts because they are priced with much less bullish outlooks, meaning they have an additional margin of safety versus growth stocks. Here are the stocks: CenturyLink, Unum (UNM), Westrock (WRK), AT&T, HP, Xerox, Principal Financial, MetLife, and Tyson Foods.
FINSUM: This is a nice mix of stocks that should naturally be un-correlated to one another.
The early thinking about grocery stocks was that the big surge in demand at the start of the COVID lockdown was just a flash in the pan. However, as earnings and guidance is emerging from companies in the space (like General Mills), it is becoming apparent that demand for groceries because of a heightened preference for home cooking seems likely to stick around for a while.
FINSUM: We agree with the fundamental thesis here. Until we cure COVID, people are going to stay worried about public spaces, including restaurants. The trick to picking stocks is to understand where each company is getting its revenue. For instance, General Mills does a lot of sales through grocery stores so its stock is rising, but Molson Coors does a large share of its sales through bars and restaurants, so its stock is falling.
There is one sector that is facing a worrying meltdown as coronavirus rolls on. It isn’t as obvious as you may think—its not retail, or restaurants, or autos. Rather, it is insurance. Insurers are about to be hit with otherworldly losses. The head of Lloyd’s of London says COVID-19 will be the most expensive event in the history of insurance, wiping out previous records set during 9/11 and Hurricane Katrina. The range of payouts coming is enormous, spanning event cancellation to management liability to business interruption. According to Lloyd’s “You’re into tens of billions, if not hundreds of billions of loss that will be discussed over time”.
FINSUM: This might not have been immediately apparent to some. Look out.
Dividends and buybacks have been looking very weak. Many buyback programs have been suspended and are likely to be under political pressure, while dividends are looking very at-risk because of likely poor earnings. So where to get some stable dividends? Barron’s ran a piece picking 40 of the safest dividends in the market. Here is a sampling: Nike, McDonald’s, Target, Home Depot, Coca-Cola, Caterpillar, Honeywell International.
FINSUM: This seems like a sound list. The only argument we might have is that Nike might not be able to maintain the hefty price increases consumers have stomached over the last five years.
Dividend stocks are a scary space right now. Not only are earnings likely to be very volatile, but companies have announced major dividend cuts and the suspension of buyback programs. With that in mind, here are some stocks that offer safe and rewarding dividends. Regulated utilities are a great place to turn because they have government-allowed profit margins and are very recession-resistant. Check out American Electric Power (3.3% yield), Dominion Energy (4.6%), FirstEnergy (3.5%), NextEra Energy (2.3%).
FINSUM: These seem like great bets. They are down a little since the COVID explosion, which has boosted yields, but utilities are generally great recession stocks.
Income investors have been frightened by the extent to which the current Coronavirus downturn is going to cause an economic downturn and thus a big cut to dividends. The only good news on this front recently has been that companies are suspending buybacks before dividends. In assessing the damage, Goldman Sachs says overall dividend payouts are going to be slashed by 25% this year. That figure includes a 38% fall for the next nine months added to the 9% rise in dividends in the first quarter.
FINSUM: This is big, but it would be far from catastrophic levels.